Economy

Australia has raised interest rates for the first time in 11 years just three weeks before a general election that is largely being fought over the rising cost of living. The Reserve Bank of Australia increased the cash rate, the benchmark interest rate, to 0.35 per cent from 0.1 per cent to stem the rising tide of inflation that hit 5.1 per cent in the 12 months to March. The 25 basis point increase was more aggressive than some analysts had expected. It was also the first time the RBA has raised the borrowing rate in an election campaign since 2007, when John Howard, the three-term prime minister, lost to Kevin Rudd.The increase, even from a historically low rate, has forced Prime Minister Scott Morrison to defend his record of economic management — his main weapon in the election campaign — as the cost of living has risen sharply. In Geelong this week, Morrison argued that a rise in interest rates should not be viewed as a political event as the RBA was independent of the government. He then took a swipe at Anthony Albanese, leader of the opposition Labor party, who could not say what the cash rate was at the start of the campaign. “At least I know what it is,” said Morrison, whose Liberal-National coalition government is trailing in the polls. The rise indicated that the RBA was moving away from emergency settings, including interest rate cuts, introduced to help steer the economy through the coronavirus pandemic.Philip Lowe, RBA governor, said on Tuesday: “The board judged that now was the right time to begin withdrawing some of the extraordinary monetary support that was put in place to help the Australian economy during the pandemic. The economy has proven to be resilient and inflation has picked up more quickly, and to a higher level, than was expected.” Lowe warned there could be further interest rate rises as inflation was predicted to hit 6 per cent this year. “The board is committed to doing what is necessary to ensure that inflation in Australia returns to target over time. This will require a further lift in interest rates over the period ahead,” he said.Speaking at a press conference, Lowe added that the central bank would focus on normalising interest rates after the pandemic. “It’s not unreasonable to expect the normalisation of interest rates over the period ahead could see interest rates rise to 2.5 per cent,” he said.Jim Chalmers, shadow treasurer, said that Morrison’s economic credibility was “in tatters”, with rates rising in an uncertain economic environment. “This is the third wave of Scott Morrison’s cost-of-living crisis. This is a triple whammy of falling real wages, skyrocketing inflation and interest rates are about to rise,” he said. Tim Lawless, a director at CoreLogic, a property research firm, said that Australian house prices had surged 27 per cent while the cash rate was at an emergency level, but the market would lose steam when rates rose.

“By lifting the cash rate during an election month, the RBA has sent a clear message it will make decisions based on its mandate and not be swayed by the political cycle,” Lawless said.Inflation has been driven by rising petrol, housing and food costs, which piled pressure on the RBA to lift interest rates after months of expectation that it would follow in the footsteps of central banks in New Zealand, the UK and the US.Josh Frydenberg, treasurer, highlighted the resilience of the economy and falling unemployment. “We don’t have an axe to grind with the Reserve Bank. They are independent,” he said. “These are global factors driving up inflation.”The rising cost of living and concerns over the prospect of higher rates has hit consumer confidence, which plunged 6 per cent last week, according to economists at ANZ Bank. Signs of a sharp slowdown in the housing market have also emerged. More

NEW YORK (Reuters) – When it comes to the status of women in the workplace, there are decades of talk and not enough action. The gender pay gap is still enormous, and CEOs are still overwhelmingly male, as are corporate boards.Stacey Vanek Smith says we should look to an unlikely source to help solve this stubborn problem: Niccolo Machiavelli.Most people remember the Renaissance-era Italian statesman from his iconic book on high-school reading lists, “The Prince.” But Smith, the NPR host and author of the new book “Machiavelli for Women,” says his insights about power and survival can be just as critical for navigating the modern workplace.“I hated that book back in college, but when I re-read it, it helped me understand why the numbers (of women in leadership positions) have been stuck for so long,” says Smith, co-host of NPR’s The Indicator from Planet Money. “It offers real suggestions and effective advice about how to gain power and hold onto it, even though it’s 500 years old.”To be sure, the connotations of the name Machiavelli are quite negative and brutal. His advice to Florence’s ruler Lorenzo de Medici derived from the historical context of regions constantly warring with each other, where the prospect of being taken over and wiped out by rivals was a very real possibility.If you can get past the sometimes harrowing nature of his counsel, these clear-eyed strategic principles – about how to evaluate threats, overcome obstacles and survive in positions of leadership – can be helpful tools in your arsenal.ARM YOURSELF WITH INFORMATIONMachiavelli may not have been a military warrior, but as a diplomat he did place a high value on another power source – information. The more you have of it, the more you can use it to advance your career. “That’s the ultimate advice, especially for women or marginalized workers,” Smith says. “Find out what the typical salary range is for the position, what your colleagues are paid, and how much experience they have. Having those facts in a game changer, because most success in negotiating comes before you even open your mouth.”ASK FOR MOREPart of what is holding women back in the workplace is systemic, like discriminatory attitudes. But women also do not advocate for themselves as forcefully as men do. If you’re not even asking for what you want in the first place, then any negotiation is dead on arrival. “Men ask for raises and promotions at five times the rate that women do,” Smith says. “There is so much stuff that is out of your hands – but this is a significant part of the equation that you do have control over as an individual.”DEMONSTRATE ‘CRAZY CONFIDENCE’Even more than actual competence, the best predictor of career success is confidence, Smith says. It’s free – but it’s definitely a skill you have to develop, since it may not come naturally. Try to be a little like James Spader’s Robert California character from the sitcom “The Office,” Smith advises – who despite little relevant experience, applies at Dunder Mifflin and ends up being appointed CEO of the entire company within days, purely thanks to his extreme confidence.NEGOTIATE WITH A NEW MINDSETThe reason why some women shy away from asking for raises and promotions, Smith says, is that such situations are often perceived as hyper-aggressive, zero-sum games. Instead, reframe such discussions as a win-win: It is obviously in the company’s interests that you feel valued and produce at your highest level, so work together to figure out how to make that happen. “This is tricky for women, because there can be a backlash to too much aggression,” says Smith. “So when I started to think about negotiations in a more collaborative way, that was the most useful shift in mindset for me.”SEIZE THE MOMENTThe pandemic has been horrible so many ways, but it also shifted the power dynamic of the modern workplace: It is now much more acceptable to work remotely and to be dealing with home and family issues at the same time.Previously, that lack of flexibility kept some women out of leadership positions, so now that work-from-home is the new reality for many, there are new pathways to corporate power, Smith says. “There is a new openness about how work gets done,” she says. “I’ve never seen a moment where workers have more power than they do right now.” More

The US Federal Reserve is expected to accelerate its monetary policy tightening this week with its first half-percentage point rise since 2000 and signal more aggressive action to come until there is clear evidence that red-hot inflation is under control. Mounting inflationary pressures stemming from a tight labour market coupled with price increases extending beyond the sectors most sensitive to pandemic-related shocks and the war in Ukraine have compelled the Fed to speed up its withdrawal of stimulus, or risk falling further out of step.Federal Open Market Committee officials will convene on Tuesday for a two-day policy gathering, at which they are expected to raise rates for the second meeting in a row and formalise plans to shrink the Fed’s $9tn balance sheet.The central bank’s rhetoric has shifted notably since March, when it delivered its first interest rate increase since 2018, bringing the target range of the federal funds rate from near-zero to between 0.25 and 0.50 per cent. Since that meeting, Jay Powell, chair, has pledged the Fed will “expeditiously” move its benchmark policy rate closer to a “neutral” level that no longer supports demand. That is likely to translate into multiple half-point rate rises in the coming months, which would lift the fed funds rate to about 2.5 per cent by the end of this year.Estimates of “neutral” vary. Fed officials have pegged it between 2 and 3 per cent, although many economists think it is higher given the current level of inflation. The Fed is “playing catch-up . . . they wish they had started earlier and so could have moved more gradually, but they didn’t,” said Randall Kroszner, who served as a Fed governor between 2006 and 2009. “If they don’t act boldly and speak about acting boldly now, the risk of inflation expectations becoming unanchored increases significantly.”

Financial markets have adjusted rapidly, with borrowing costs across a number of metrics dramatically higher than just a few weeks ago. The benchmark 10-year Treasury yield breached 3 per cent on Tuesday, having just reached 2 per cent in February. That is the highest level in four years and the fastest rise of that magnitude since late 2010. Equity markets have also come under pressure, with the technology-heavy Nasdaq Composite registering in April its worst monthly performance since 2008.To augment its tightening efforts, the Fed will also soon begin reducing its holdings of Treasuries and agency mortgage-backed securities, which swelled over the past two years as the central bank propped up financial markets and the economy. The Fed will make official on Wednesday its plans to shed up to $95bn of assets a month — split between $60bn in Treasuries and $35bn in agency mortgage-backed securities. The process is likely to start in June.Taken together, the next few policy meetings constitute the “front-loading” phase for the Fed, said Allison Boxer, an economist at Pimco, as it seeks to reverse the largesse provided during the pandemic. She reckoned that the earliest the Fed could return to quarter-point rate rises is September, particularly after Russia’s invasion of Ukraine fuelled the inflation surge. Some traders have speculated the central bank may boost the size of its rate increases and implement a 0.75 percentage point adjustment at some point, something it has not done since 1994.Uncertainty about how high the Fed will need to raise interest rates to push inflation back towards its 2 per cent target is also complicating the outlook. Core inflation, as measured by the personal consumption expenditures price index, now hovers at 5.2 per cent from a year ago. “I don’t think one can assert with any confidence that we know where the end point is for rate increases,” said Jeremy Stein, a Harvard academic who was nominated by the Obama administration alongside Powell to serve on the Fed’s board of governors in 2011. “You can say we’re going to do what it takes, but it’s hard to know at this stage what it will take.”

“There’s a fair amount of prayer involved,” he quipped.James Bullard, a voting member of the FOMC this year and one of its biggest hawks, said last month that it is a “fantasy” to think the Fed can bring inflation down far enough without lifting rates to a level that actively constrains economic activity.“Neutral is not putting downward pressure on inflation. It’s just ceasing to put upward pressure on inflation,” he said, noting his support for the fed funds rate to be 3 percentage points higher by the third quarter. Given the Fed’s spotty record in successfully engineering a “soft landing” without causing undue economic pain, economists are concerned about an impending recession and job losses. While officials have been optimistic they can avoid that outcome, they have also acknowledged the challenge ahead. Investors on Wednesday will be looking for any sign Powell’s confidence is waning.“The Fed is not operating with a scalpel but more with a hatchet in terms of how it is affecting the economy as policy becomes less accommodative and eventually restrictive,” said Peter Hooper, global head of economic research at Deutsche Bank, who worked at the Fed for almost three decades. “I just don’t see any way around unemployment needing to go up because of this process.”Additional reporting by Kate Duguid in New York More

NEW DELHI (Reuters) – Indian financial consultant Waqar Khan has seen his income drop by about a fifth since the coronavirus pandemic began. When his younger son’s private school raised fees by 10% this year, he had no choice but to move him to the state system.With three children and living in a small house in the capital, New Delhi, the 45-year-old can no longer afford private school fees for his boy of 10. He moved his older boy into a state school in early in 2021.”I had no option,” Khan told Reuters, adding that rising education costs had come on top of a nearly 25% increase in household expenses in the past two years.While inflation is putting the heaviest burden on the poorest, the relatively well-off are coming under the sort of pressure to make cuts in household budgets not seen in years.Khan is among millions of parents who have moved children from private to state education since 2020, or from elite schools to cheaper ones. In 2021, four million children switched from private to state, more than 4% of all children in school.That is a reversal of a trend that has swept India over the past two decades, as more families in an increasingly prosperous society opted for private education to give their children an advantage in the job market.But now inflation means that such aspirations are becoming unaffordable for some.”My family life is shattered. I often feel distressed and helpless at being unable to provide good education for my children despite all the hard work,” Khan said.His daughter, a 12th grade student, is still at the school where his 10-year-old had been, as he has not been able to find a place in the state system for her.For the fast-growing middle class, the appeal of lessons in English and better teaching is huge.The private sector covers a range of schools and fees, from a few dollars a month to hundreds, and so serves lower- and middle-income families as well as the wealthy.On top of fees, transport companies that take children to school have raised prices by more than 15% this month in Delhi and some other places to cover higher wages and fuel, parents’ associations said.Arjun Singh, 47, who drives a school van and owns three school cabs, said he increased his charges by up to 35% in April because of higher costs. Prices for compressed natural gas (CNG) for his vehicles had almost doubled, he said.Broader inflation is biting hard, touching 6.95% in March – a 17-month high and above the central bank’s target, and economists say that households are bracing for worse as companies pass on the costs.’ADVERSE CONSEQUENCES’Many private schools have raised fees and other charges by more than 15% this year, said Aparajita Gautam, president of the Delhi Parents Association, although some had delayed doing so during the worst of the pandemic. Her association has protested at a number of private schools in the capital, drawing the attention of the media and authorities.In response, Delhi’s government has simplified the procedure for enrolling in state education and promised to audit school accounts, while trying to encourage schools to cap fee increases at 10%, with little success.”Most private schools are forcing parents to accept steep hikes or face adverse consequences,” Gautam said.In the city of Kolkata, nearly 70% of private schools raised fees by up to 20% last month, and some parents have asked authorities to press schools to soften the blow.Schools defend the higher fees.Sudha Acharya, head of the National Progressive Schools’ Conference and principal at ITL Public School, understood that many parents were going through tough times but schools faced rising costs.”Without increasing school fees again, maintaining quality is a little difficult,” she said.The Delhi-based Centre Square Foundation, a consultancy, found in a 2021 study that a majority of 450,000 private schools in India, 70% of which charged up to 1,000 rupees ($13) a month per student, faced financial losses of 20%-50% during the pandemic.As parents defaulted, some schools cut teachers’ pay and thousands of schools, particularly those catering to lower-income families, closed, according to school associations and state authorities.Enrolment in private schools has skyrocketed to more than 35% of students from about 9% in 1993, and nearly 50% of households spend nearly 20% of their earnings on children’s education, according to government and industry estimates.A family with monthly income of 20,000-50,000 rupees ($260-$650) might pay 2,000-10,000 rupees a month on tuition and another 1,500-5,000 rupees on transport.DEBT TRAPThere are about 90 million Indian children in private schools in total.Federal and state governments spent 6.43 trillion rupees ($84 billion) to fund about 1.1 million schools in 2019/20, or about 3.1% of gross domestic product against 6% recommended by various government panels.Economists said rising private education costs were not fully captured in inflation data, as it is weighted at just 4.5% in the consumer prices index based on a decade-old model.Devendra Pant, chief economist at India Ratings, the Indian arm of the Fitch rating agency, said rising education costs were part of a second wave of inflation households were facing after a rise in global crude oil and other commodity prices.”It would significantly impact households’ monthly budget and could force many to cut spending on other products and services.”Some parents have been caught in a nightmare debt trap that could rob their children of education altogether.Sanjay Kumar Vaghela, a driver in Ahmedabad city who had to borrow money after losing work, said he could not afford to pay the higher fees for his daughter nor clear the 18,000 rupees he still owed her school.The school asked him to pay the outstanding fees before it issued a transfer certificate, without which no state school was prepared to admit his daughter, he said.”My daughter may remain without education forever as I have no funds to pay,” he said.($1 = 76.4830 Indian rupees) More

TOKYO (Reuters) – Ryu Ishihara will soon be raising prices on his inexpensive bowls of soba noodles for the first time in nearly a decade, as rising costs and Russia’s invasion of Ukraine take an unlikely toll on Japan’s beloved buckwheat noodles.Though seen as one of the most quintessential of Japanese foods – and eaten on New Year’s Eve for good luck – a good part of the buckwheat that goes into the noodles comes from Russia, globally the top buckwheat producer.Russian buckwheat can still be imported, but instability and shipping disruptions have hampered and delayed procurement. That has added to the pain for soba shop owners such as Ishihara who are already suffering as a global surge in commodity prices, coupled with the yen’s plunge, has sent prices climbing.Soy sauce, flour, the vegetables used for tempura toppings and even the fish used for the broth have all risen in cost.”The suppliers did all they could, but this time the situation’s so bad there’s no way to avoid raising prices. There are things I’ll have to raise by 10 to 15 percent,” Ishihara said in his narrow shop, steaming vats of water behind him.Soba is famous as a cheap meal served cold or hot, often slurped quickly by workers and students in narrow shops that may cut costs by doing without seats. The noodles’ low calorie count and nutritious vitamin and mineral content makes them healthy too.Ishihara’s prices run from 290 yen ($2.25) up to 550 yen, with add-ons such as tempura and sets with rice costing more.”Now, with the war, the cost of importing the buckwheat too has gone up,” he said.Despite soba’s iconic status, Japan in 2020 produced only 42% of its buckwheat needs, according to the Japan Soba Association. The gap is filled by imports, with Russia the third-largest source of buckwheat from 2018, according to the Agriculture Ministry.In 2021, Russia rose to second, displacing China, and up until February it was No. 1.Then it invaded Ukraine, adding to the surge in commodities prices, while Japan’s yen meanwhile plunged to a 20-year low. On top of that, sanctions and crackdowns on the Russian banking system, which have frozen Moscow out of international finance, have made it more difficult to settle some accounts.The result has been headaches for soba importers and millers like Hua Yue at the purchasing department of Nikkoku Seifun Co Ltd in Matsumoto, a city in the traditional soba-producing area of Nagano.Her company imports buckwheat seeds from Russia, as well as other nations including China, in 800- to 1,000-tonne sacks, though she declined to give exact amounts or percentages of how much each country provides.So far, the biggest problems have been delays and a 30% rise in the price of Russian buckwheat over the last six months, though that’s partly due to an export stoppage last year that was resolved.With Russia producing half the world’s buckwheat, problems mean demand will shift to second-biggest producer China. But with China cutting buckwheat production every year, prices are likely to rise further.”So it may become hard to eat soba at low-cost places,” she added.Ishihara’s faithful customers, such as Keidai Fukuhara, who comes twice a week, shrug higher prices off. But even they may have their limits.”It’ll still be all right,” the 27-year-old office worker said. “That is, if the prices stay around 500 yen.”($1 = 128.65 yen) More

Markets expect the Federal Reserve on Wednesday to announce a half-percentage point increase in its benchmark interest rate.
Fears are growing over how aggressive the central bank will have to be to tame inflation.
“A recession at this stage is almost inevitable,” former Fed vice chair Roger Ferguson told CNBC.

Jerome Powell, Chairman of the U.S. Federal Reserve, attends the National Association of Business Economicseconomic policy conference in Washington, D.C, United States on March 21, 2022.
Yasin Ozturk | Anadolu Agency | Getty Images

The Federal Reserve is tasked with slowing the U.S. economy enough to control inflation but not so much that it tips into recession.
Financial markets expect the central bank on Wednesday to announce a half-percentage point increase in the Fed’s benchmark interest rate. The fed funds rate controls the amount that banks charge each other for short-term borrowing but also serves as a signpost for many forms of consumer debt.

Doubts are rising about whether it can pull it off, even among some former Fed officials. Wall Street saw another day of whipsaw trading Monday afternoon, with the Dow Jones Industrial Average and S&P 500 rebounding after being down more than 1% earlier in the session.
“A recession at this stage is almost inevitable,” former Fed vice chair Roger Ferguson told CNBC’s “Squawk Box” in a Monday interview. “It’s a witch’s brew, and the probability of a recession I think is unfortunately very, very high because their tool is crude and all they can control is aggregate demand.”

Indeed, it’s the supply side of the equation that is driving most of the inflation problem, as the demand for goods has outstripped supply in dramatic fashion during the Covid-era economy.
After spending much of 2021 insisting that the problem was “transitory” and would likely dissipate as conditions returned to normal, Fed officials this year have had to acknowledge the problem is deeper and more persistent than they acknowledged.
Ferguson said he expects the recession to hit in 2023, and he hopes it “will be a mild one.”

Hiking and ‘the recession that comes with it’

That sets up this week’s Federal Open Market Committee as pivotal: Policymakers not only are almost certain to approve a 50-basis-point interest rate hike, but they also are likely to announce a reduction in bond holdings accumulated during the recovery.
Chair Jerome Powell will have to explain all that to the public, drawing a line between a Fed determined to crush inflation while not killing an economy that lately has looked vulnerable to shocks.

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“What that means is you’re going to have to hike enough to maintain credibility and start to shrink the balance sheet, and he’s going to have to take the recession that comes with it,” said Danielle DiMartino Booth, CEO of Quill Intelligence and a top advisor to former Dallas Fed President Richard Fisher while he served. “That’s going to be an extremely difficult message to communicate.”
The recession chatter on Wall Street has intensified a bit lately, though most economists still think the Fed can tighten inflation and avoid a crash landing. Market pricing indicates this week’s increase of 50 basis points is to be followed by a hike of 75 basis points in June before the Fed settles back into a slower pace that eventually takes the funds rate to as high as 3% by the end of the year.
But none of that is certain, and it will depend largely on an economy that contracted at 1.4% annualized pace in the first quarter of 2022. Goldman Sachs said it sees that reading dropping to a 1.5% decline, though it expects second-quarter growth of 3%.

Fears of bad timing

There are “growing risks” in the economy that could derail the Fed’s plans, said Tom Porcelli, chief U.S. economist at RBC Capital Markets.
“For starters, while everyone seems very focused on here and now data/earnings that seem to suggest all is fine at the moment, the problem is cracks are building,” Porcelli said in a note. “Moreover, this is all happening as inflationary pressures are quite likely to slow — and possibly slow more than seems appreciated at the moment.”
Monday brought fresh signs that growth at least could be slowing: The ISM Manufacturing Index for April decreased to 55.4, indicative of a sector still expanding but at a reduced pace. Perhaps more importantly, the employment index for the month was just 50.9 — a reading of 50 indicates expansion, so April pointed to a near-halt in hiring.
And what of inflation?
Twelve-month readings are still registering the highest levels in about 40 years. But the Fed’s preferred measure saw a monthly gain of just 0.3% in March. The Dallas Fed’s trimmed mean, which throws out readings at either end of the range, tumbled from 6.3% in January down to 3.1% in March.
Those kinds of numbers conjure up the worst fears on Wall Street, namely that a Fed way behind the curve on inflation when it began now may be as recalcitrant when it comes to tightening.
“They’re going to reiterate, ‘Look, we’re going to be data-sensitive. If the data changes, we’ll change what we’re expected to do,'” said James Paulsen, chief investment strategist at The Leuthold Group. “There’s certainly some slower real growth going on. It’s not falling off a cliff, for sure, but it’s moderating. I think they’ll be more sensitive to that down the road.”

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The ANZ measure of consumer confidence sank 6.0% last week, the sharpest drop since an Omicron wave swept through the eastern seaboard in January. The slide followed data showing consumer price inflation spiked to a 20-year peak of 5.1% in the first quarter.The grim mood was a challenge for Prime Minister Scott Morrison as he fights a tough election campaign that, going by opinion polls, could see him turfed out of office on May 21.The index reading of 90.7 implied pessimists now easily outnumbered optimists amid speculation the Reserve Bank of Australia (RBA) could hike rates at its monthly policy meeting later on Tuesday.Confidence among those with mortgages tumbled 9.6% in the week, while measures of current financial and economic conditions fell sharply.”This is the lowest level for consumer confidence at the start of a tightening cycle since the inflation targeting regime began in the early 1990s,” noted ANZ’s head of Australian economics, David Plank.”This may see the RBA tighten more slowly than the market is pricing.”Markets are wagering heavily the RBA will lift its 0.1% cash rate to 0.25% on Tuesday and follow with a move to 0.5% in June. Futures imply a whole string of hikes taking rates to around 2.5% by the end of the year and to 3.5% by the middle of 2023. More

NEW YORK (Reuters) – Citigroup Inc (NYSE:C) acknowledged late on Monday that one of its traders made an error in the sudden fall of European shares early in the day.”This morning one of our traders made an error when inputting a transaction. Within minutes, we identified the error and corrected it,” Citigroup said in a statement. More